Sec. 26. (a) The proceeds of the refunding bonds issued under section 25 of this chapter shall be placed in escrow and applied with any other available money to the payment on the date selected for redemption of the principal, accrued interest, and any redemption premiums of the bonds being refunded. In addition, if provided or permitted in the resolution authorizing the issuance of the refunding bonds or in the trust indenture securing them, the proceeds may also be applied to the payment of any interest on the refunding bonds and any costs of refunding. Pending application, the escrowed proceeds may be invested in direct obligations of, or obligations the principal of and the interest on which are unconditionally guaranteed by, the United States, which must mature, or which must be subject to redemption by the holder of them at the option of the holder, not later than the respective dates when the proceeds, together with the accruing interest, will be required for the purposes intended.

     (b) In lieu of those investments, all or part of the proceeds may be placed in interest bearing time certificates of deposit with the bank that the board designates. Other similar arrangements may be made with the bank that will assure that the proceeds, together with the accruing interest, will be available when required for the purposes intended, but time certificates of deposit or other similar arrangements must be secured to their full amount by direct obligations of, or obligations the principal of and the interest on which are unconditionally guaranteed by, the United States of the type permitted for direct investment of the escrow fund.

     (c) All interest or other income earned on these investments must first be used to pay the interest on the refunding bonds as it becomes due. Any excess becomes a part of and shall be held in the escrow fund. Any balance remaining in the escrow fund after redemption of all the bonds being refunded shall be deposited in the sinking fund established for the payment of the principal and interest on the refunding bonds.

As added by Acts 1982, P.L.218, SEC.5.